Anne Marie Morris, the MP for Newton Abbot, used the N- word at an event. She however, told the BBC "the comment was totally unintentional" and apologised unreservedly for any offence caused.
She later confirmed she had had the whip withdrawn.
Announcing the suspension, Prime Minister Theresa May said she was "shocked" by the "completely unacceptable" language.
"I immediately asked the chief whip to suspend the party whip," she said in a statement.
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Suggesting that just 7 per cent of financial services would be affected by Brexit, she reportedly said, "Now I am sure there will be many people who will challenge that but my response and my request is look at the detail - it isn't all doom and gloom."
"Now we get to the real nigger in the woodpile, which is in two years what happens if there is no deal," she went on.
It was subsequently used in the 20th century - including by a number of leading novelists - as a metaphor to describe a hidden fact or problem.